China Economy: Measures To Support Growth

British Embassy Beijing

August 2013

Summary

The Chinese authorities have announced a series of policies to sustain growth, likely responding to recent weak economic indicators. Most analysts are expecting more targeted growth supportive measures in the coming months. Chinese leaders remain positive about the economic situation. This report is a factual summary of the recent announcements.

Details

In the past few weeks, the Chinese authorities have announced a series of measures to sustain growth:

  • Support for small firms: the State Council (Cabinet) announced a temporary exemption from VAT and business tax for micro and small sized enterprises (i.e. companies with monthly sales income less than RMB 20,000, £2,200), effective from 1 August. The authorities estimate this will benefit 6 million companies, which provide tens of millions of people’s jobs and income. Vice Premier Ma Kai also held a work meeting to urge banks to support financing for micro and small sized enterprises.

  • Support for trade: the State Council announced to simplify export procedures, to reduce export related fees, to increase financial institutes’ support for profitable exporters, better services for small and medium sized exporters, to expand goods imports, to maintain international balance of payments and to stabilise RMB exchange rate at a reasonable equilibrium level; SAFE (the foreign exchange regulator) announced to simply procedures of services trade related foreign exchange transactions.

  • Investment: the State Council announced that they would set up a railway development fund to attract private investment, allowing local governments and private investors to own or operate railways, to better use land resources to support railway development, and to secure railway projects finish on time and of good quality as planned in the 12th Five Year Plan (FYP). The State Council also announced that it would enhance urban infrastructure construction by procuring services from the private sector, including underground pipeline, waste management, gas and heating pipeline renovation, public transport, urban power grid, and eco-environment infrastructure.

  • Fiscal spending: the Ministry of Finance urged the governments of all levels to accelerate budget spending and to secure efficient use of fiscal resources.

  • Social housing: the State Council reemphasized social housing construction, distribution and management and reiterated their ambition to upgrade slum clearances according to the 12th FYP.

  • Environmental: the State Council announced to develop energy saving and environment protection industries and IT consumption (including 3G coverage and 4G licensing).

In other developments, the Ministry of Industry and Information Technology has also announced the first batch of companies in 19 overcapacity industries to be forced to close by the end of 2013. Separately the State Council tasked the National Audit Office (NAO) to do a second round of nation-wide audit on local government debt situation (the NAO reviewed local government debt situation in selected cities in June, which showed a relatively quick debt accumulation).

Comment

The recent policy announcements are likely the authorities’ reaction to disappointing growth figures in 2013 Q2. China’s economy slowed to a 7.5 percent year-on-year growth in 2013 Q2. Albeit most economic indicators remained stable, they were broadly slower than the previous year’s.

However, the government remained relatively optimistic. In the Party’s Politburo meeting on 30 July, President Xi Jinping re-iterated the government’s view that growth remained in a “reasonable range” in the first half year as targeted. Chance to introduce big stimulus as during the financial crisis remains low. Premier Li Keqiang said in Guangxi on 9 July that there was no reason to implement monetary easing.  Finance Minister Lou Jiwei reconfirmed this during G20 Summit.

The authorities aim to stabilise growth while restructuring the economy. Premier Li Keqiang emphasised several times in recent State Council’s Executive Meetings the need to “keep growth within a reasonable range”, together with a clear macroeconomic policy framework, which includes economic restructuring and reforms. The recent policies are in line with this objective. For example, removing taxes for small firms and encouraging private investment could boost the private sector and strengthen market mechanisms. And tackling overcapacity and developing environment protection industries could adjust the economy towards a more efficient way of growth.

The market is expected to respond positively. Exporters, in particular, will find a lot of comfort if the PBoC (Central Bank) does not allow the RMB to appreciate against USD from its current level (RMB appreciated by 2 percent in the first half year, compared with 0.24 percent appreciation in 2012 as a whole). This could help restore the competitiveness of Chinese exports. Measures to support small firms could help sustain employment (official figures suggest the labour market remained tight in the first half year).

The Politburo meeting announced that the government would continue “proactive fiscal policies and prudent monetary policies” in the second half year, and would continue fine-tuning policies based on changes in the economic situation, while balancing stable growth, structural adjustment and reforms. Most analysts expect more small targeted growth supportive measures to be introduced in the coming months.

Disclaimer

The purpose of the FCO Country Update(s) for Business (”the Report”) prepared by UK Trade & Investment (UKTI) is to provide information and related comment to help recipients form their own judgments about making business decisions as to whether to invest or operate in a particular country. The Report’s contents were believed (at the time that the Report was prepared) to be reliable, but no representations or warranties, express or implied, are made or given by UKTI or its parent Departments (the Foreign and Commonwealth Office (FCO) and the Department for Business, Innovation and Skills (BIS)) as to the accuracy of the Report, its completeness or its suitability for any purpose. In particular, none of the Report’s contents should be construed as advice or solicitation to purchase or sell securities, commodities or any other form of financial instrument. No liability is accepted by UKTI, the FCO or BIS for any loss or damage (whether consequential or otherwise) which may arise out of or in connection with the Report.

Sectors: Railways
Countries: China
Topics: Finance, Getting Started, and Legislation & Regulation
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